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Tarrin takes off the gloves, faces critics

September 18, 2000

Despite the growing prospect of a Democrat rout in the upcoming general election and his own political isolation, Tarrin Nimmanahaeminda last week managed to convey the demeanour of a confident finance minister, neatly concealing any signs of personal vulnerability.

Indeed, he seemed without a single doubt as he defended his salvation of the Thai financial and economic system, which collapsed in 1997.

Tarrin should have realised he was fighting against the odds, given the tide of political and public sentiment moving against him and the Democrats in general - not to mention growing scepticism toward the structural reforms he had put in place over the past three years.

He suggested that negative sentiment against the government and the economy may have been stoked by certain elements in the country who have been playing down the economic recovery (Can you say Virabongsa Ramangkura?).

Skyrocketing oil prices also hit hard at the pocket books of Thai consumers, threatening to push up the prices of other goods and services. But this external factor is beyond anybody's control.

Unlike Malaysia, which is selling oil equivalent to 40 per cent of its total exports, Thailand is not self-sufficient in energy. But the average citizen associates high oil prices and the higher cost of living to the government's failure to tackle the economic problems.

With the unsettled banking sector, a high level of external debts and continuing political uncertainty, the baht has plunged to a 25-month low, almost touching 42 to the US dollar.

This has raised fears of inflation and a slowdown in the purchasing power consumers, factors bound to affect economic recovery.

A lot of people are also feeling uncomfortable with the inconsistency of the country's economic management. That, of course, is largely due to the political uncertainty, which has only deepened with the delay of general elections until late this year.

With the collapse of the stock market, the sluggish pace of credit extension and growing concern over capital outflow, which reached a net of about US$7 billion (Bt292.95 billion) in the first half of this year, many people have begun to wonder how Thailand can possibly sustain an economic growth rate of 4.5 to 5 per cent this year or the next.

The only thing saving the country right now is the export sector, which is expected to rack up an impressive growth rate of 15 per cent this year. Exports will help produce a current account surplus of about $9 billion.

Phunsak Winyarat, the chief political strategist of the Thai Rak Thai Party, earlier quipped that after the general election the finance minister would be sent back to his hometown of Chiang Mai for an extended vacation.

Tarrin quickly brushed aside this prospect. He said he would not mind occupying the Opposition bench again in the event of the Democrats' defeat, for he fulfilled this duty as a Democrat between 1996 and 1997, first during the Banharn administration and then during the Chavalit administration.

What he cared most about, he said, was his record - his dedication to salvaging the wreckage of the Thai economy and putting it back on the path to recovery.

In his view, many people never realised the country had gone bankrupt, after the central bank squandered all foreign-exchange reserves in a futile baht defence, by the middle of 1997.

This foreign-exchange crisis was compounded by weakness in the Thai banking system, he said. More than half the assets of the Thai banks turned sour when the financial system was fully exposed to the crisis, the depth of which was so severe the government had to spend future income of Bt1.2 trillion to Bt1.4 trillion to bail out finance companies and banks.

Given the enormity of this assault on the country's treasury, it is almost a miracle that the Thai economy has recovered to the degree that it has. In its present state, the economy is experiencing relative stability.

Tarrin would like to claim credit for his confidence-building management, first with the currency, then in tackling the macro-economy, the banking system and structural reform. Now the economy is back on a recovery path.

His critics, on the other hand, prefer to point out that the country's economic conditions have only improved because the government has spent a fortune to bail out the banks.

Virabongsa, Tarrin's nemesis, would argue the economy is not recovering but is simply experiencing a technical rebound. Pridiyathorn Devakula, president of the Export and Import Bank of Thailand, also believes that the Thai economy has bounced back naturally on the back of a baht devaluation, from 25 to the dollar to 40 to the dollar. In short, Thailand has triggered a price war to dig itself out of the crisis, he said.

To which Tarrin retorted: "Without all the measures that we have put in place, Thailand would have become a cash economy by now, which means that people would no longer have trust in the financial institutions. They would have traded only on cash."

Over the past six months, there has been deepening fear about the possibility of a second round of economic crisis. Tarrin has come out on several occasions to calm this nervousness.

He produced a report of the International Monetary Fund showing that most of the key economic indicators have improved sharply since last year against the 1997-1998 crisis. The IMF's projection, conducted in June this year, puts the Thai growth rate for this year at 4.5 per cent.

"We have already by far passed beyond the point of the crisis, if you define 'the crisis' as a complete loss of foreign exchange reserves, a system-wide failure of the financial institutions and a massive flight of capital," Tarrin said.

Tarrin has gambled all his political fortunes on the recovery of the Thai economy. When the Democrats took office in late 1997, he pledged to salvage the economy in two years. Given a minus GDP of 1.7 per cent in 1997, a minus 10.2 per cent in 1998, the economy will return to its pre-crisis level next year, from a growth rate of 4.2 per cent last year, 4.5 per cent this year and 4.5 per cent in 2001.

"I am saying that the Thai economy is recovering, but I have never said that it has recovered broadly in all sectors. And if you ask me when we can clean up our debts arising from the crisis, I'll say I don't know because it will take several years down the road," he said.

Tarrin's focus is on rebuilding confidence in both the financial system and the prospects for the economy. Without confidence, he argues, Thailand will never emerge from its present quagmire.

He conceded there is a lot more work to do. But will the Thai voters buy his argument, allowing him a return to Parliament on the Democrat party list? Stay tuned.




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